State officials should wait before enacting new oil-and-gas tax policies

With the exploration of Ohio's Utica and Marcellus shale in its infancy, it's important for policymakers to better understand the economic viability of the play, before enacting any new tax policies.

The rationale is simple: You don't want to implement policies that can't meet their stated objective, or as the saying goes, “If you don't know where you're going, you'll probably end up somewhere else.”

As new wells come into production and better inform the discussion on tax policy, the state has enacted the most significant changes to oil and natural gas law in the country over the last two years to ensure the safe and reliable development of Ohio's shale resources. One recent statutory revision of note is the doubling of the state severance tax in order to properly regulate this growing industry.

The potential benefits of natural gas and oil production in Ohio's Utica and Marcellus shale — one of the world's largest-known resources of natural gas — presents a golden opportunity to create tens of thousands of new jobs and boost the economy throughout the state.

Furthermore, the millions of dollars being invested to explore, produce, transport and refine Ohio's shale resources are based on the current tax and regulatory structure.

This investment, which is already reviving communities throughout the state, is benefitting all Ohioans through decreased energy prices, increased tax revenue at the state and local levels and the creation of good paying new jobs.

An increase in tax rates on the industry raises costs and poses additional uncertainty — issues that could cause companies to scale back their investment plans and dampen enthusiasm for new investments in Ohio. The reality is, Ohio is not their only option. Companies can delay investments here and make them elsewhere in the nation or the world at large, particularly when the economics of Ohio's shale reserves are unproven at this point.

What seems lost in the recent discussion to raise Ohio's severance tax rate for the oil and natural gas industry is the fact that the rate is based on the state's regulatory needs. As stated earlier, the severance tax was just increased two years ago in order to properly enforce federal and state law to protect the public health, safety and environment. This tax is paid not only by the industry but also by landowners, many of which are Ohio farmers, who are the ones that actually own the minerals being developed.

Increased domestic oil and natural gas production creates jobs, stimulates the economy, lowers energy costs for consumers and provides for a secure energy future. Therefore, it is imperative that the industry and policymakers work together to have an educated conversation about tax policy in order to avoid any action would diminish the potential positive shale development benefits received by Ohioans.

Terry Fleming is executive director of the Ohio Petroleum Council, the state arm of the American Petroleum institute.

Terry Fleming is executive director of the Ohio Petroleum Council, the state arm of the American Petroleum institute.